Recent explosion in New York carries warnings for Asset Managers

New York 22nd July – Streets reopen after devastating steam pipe rupture killing one person

Some of the streets near Grand Central Station were reopened on Saturday as officials work through the process of repairing the damage and returning the streets to normal.

The blast was caused by the rupture of an 83 year old steam pipe last Wednesday during the evening rush hour in Manhattan. This caused steam vapour, debris and asbestos to fly through the air and left a large crater in its wake.

New York is the home of the worlds largest steam system piping vapour through to businesses and homes across the city, the more you look at this incident the more it seems that it was fortunate to occur where it did and not under more populous areas.
It all begs the question; what is going on with the infrastructure of the USA?

Reuters carries a story today about the intention of the New York City Council to grill Consolidated Edison on the incident, with some pretty accusatory statements regarding this utilities past performance. This company also managed assets responsible for an explosion in 1989 which killed three people.

While explosions like this and the blackout of 2003 tend to focus public attention, it underlines an even greater risk to public health and well being. New York is very publicly facing what many other cities with aging infrastructure have been trying to deal with.

“When do we replace our assets?”

New York, like many other of the world’s capitals, is facing the facts that their infrastructure assets are quickly approaching, or have already passed, their 100th anniversary. Water pipes, steam pipes, wastewater networks and rail infrastructure are all things that we take for granted. But these as these assets continue to age and the level of use they are subject to continues to raise, issues like asset management start to become issues relating directly to public health, welfare and economic stability of the city.

Thames Water, asset manager for the London water and wastewater networks, endured a 24% reduction in profit during the last quarter of 2006, partly due to the need for it to spend millions of pounds on relining 1000’s of miles of Victorian era water pipes throughout London.

In the United Kingdom under the financially regulated utilities markets that exist there, the science of monitoring asset condition and modelling asset life is a central element in the business planning and strategies of the companies who are responsible for managing these assets. It also occupies the government bodies that have been set up to regulate these industries.

This issue has spawned many asset management standards and efforts such as the PAS-55 and the recent efforts by UKWIR to and the Office of the Rail Regulator to set out criteria for judging the accuracy of asset performance plans.

This is obviously of great national importance to that country but also to the United States. The costs of pipe replacement and relining need to be borne by somebody, and the consumer seems to be the most likely target unfortunately. OFWAT, the water regulator of the UK, has deemed that water rates will be allowed to rise an estimated 18% above inflation until 2010 in part to cover new assets and replacement and refurbishment programs.

So what is the condition of assets within the USA generally? Does anybody really know and what is being done to make sure that the infrastructure of US cities are able to continue to manage the growing populations there? Particularly as these assets are now nearing one hundred years old or more in some cases?

The challenge for asset managers in these industries is huge. How do they minimise capital expenditure while ensuring that serviceability continues at it existing levels or better? If recent European examples are anything to go by then this will take some pretty intensive thinking.

First, where possible new technologies will need to be found and deployed as cost effectively as possible. Second, modelling techniques will need to be found that can take into account different operating plans and strategies, current usage and condition data, and use this to confidently predict windows when these assets will need to be replaced. And last, there will need to be a focussed effort on the asset economics side of things.

This means understanding when the best time to replace is to replace or refurbish assets. During weekends, holidays, prior to expected price hikes? What about spares? Can lower cost spares be found for obsolete assets via modern technologies? Will this enable you to extend the end-of-life dates for the asset sections? What about small redesigns? Could this be used to delay capital spending? Or are the consequences associated with the failure dramatic enough for you to consider early replacement, regardless of early capital expenditure?

This is an issue that will plague the infrastructure management of many of the world’s centres during the next ten to fifteen years, but the main issue will always be – who pays!

Equipment, Maintenance and Technology is part of the Lassiter Group. (C) Lassiter 2007.